On Option Pricing Bounds

Authors

  • PETER H. RITCHKEN

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    • Weatherhead School of Management, Case Western Reserve University. I wish to thank the referees for helpful comments on various versions of this paper.

ABSTRACT

The purpose of this article is to compare the Perrakis and Ryan bounds of option prices in a single-period model with option bounds derived using linear programming. It is shown that the upper bounds are identical but that the lower bounds are different. A comparison of these bounds, together with Merton's bounds and the Black-Scholes prices in a lognormal securities market, is presented.

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